An investor puts up $ 5,000 but borrows an equal amount of money from their broker to double the amount invested in ABC stock . The broker charges 7 % on the loan . The stock was originally purchased at $ 25 per share and in one year the investor sells the stock for $ 28 . The trading cost is $ 0.2 per share . ABC stock pays dividends of $ 0.4 per share . The investor's rate of return was

An investor puts up $ 5,000 but borrows an equal amount of money from their broker to double the amount invested in ABC stock . The broker charges 7 % on the loan . The stock was originally purchased at $ 25 per share and in one year the investor sells the stock for $ 28 . The trading cost is $ 0.2 per share . ABC stock pays dividends of $ 0.4 per share . The investor's rate of return was

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter18: Initial Public Offerings, Investment Banking, And Capital Formation

Section: Chapter Questions

Problem 9MC

See similar textbooks

Similar questions

An investor puts up $5,000 but borrows an equal amount of money from their broker to double the amount invested to $10,000. The broker charges 7% on the loan. The stock was originally purchased at $25 per share and in one year the investor sells the stock for $28. What was the investor's rate of return?
An investor puts up $5,000 but borrows an equal amount of money from his broker to double the amount invested to $10,000. The broker charges 8% on the loan. The stock was originally purchased at $50 per share, and in 1 year the investor sells the stock for $55. The investor's rate of return was ____. Multiple Choice 6.00% 12.00% 14.00% 2.00%
An investor buys $ 16,000 worth of a stock priced at $ 18 per share using 70 % initial margin . The broker charges 9 % on the margin loan and requires a 35 % maintenance margin . The stock pays a $ 0.60 per share dividend in one year and then the stock is sold at $ 25 per share . What was the investor's rate of return
An investor buys $ 20,000 worth of a stock priced at $ 25 per share using 80 % initial margin . The broker charges 5 % on the margin loan and requires a 40 % maintenance margin . The stock pays a $ 0.40 per share dividend in one year and then the stock is seld at $ 35 per share . What was the investor's rate of return
You purchased 90 shares of a stock at the start of the month, with part of the purchase financed by your broker. The purchase price was $50 per share. Your broker chargers an effective margin rate of 0%. Your initial margin was 80% and you sold all the shares at the end of the month for $56 per share and repaid the loan. The stock paid a $3 dividend per share while you held the stock. What return would you have earned if you had completed the same sequence of events without borrowing from your broker?
An investor buys $17 thousand dollars of ABT stock at $20 per share, using 58% initial margin. The broker charges 6% APR compounded daily on the loan, and requires a 35% maintenance margin. The stock pays $0.85 per share dividend each year. If the stock is sold at the end of the year at $21 per share, what is the investor's rate of return?
On March 1st, Frank opens a brokerage account and sell shorts 200 shares of Doggie Treats Inc. at $60 per share. The initial margin requirement is 50%. a. What is the margin in Frank’s account when he first sells the stock? b. The stock pays a cash dividend of $1 on March 28th, and the share price falls to $50 per share by the end of March, what is the remaining equity in his account? c. What is the monthly rate of return on his margined position?
An investor buys $ 8,000 worth of a stock priced at $ 50 per share using 60 % initial margin . The broker charges 7 % on the margin loan and requires a 35 % maintenance margin . In one year the investor gets a margin call . At the time of the margin call the stock's price must have been
An investor purchases 1000 shares of a company at GHS20 per share using his own equity of GHS10,000 and borrowing the rest from his broker at 20% per annum. If all the shares were sold one year later at GH¢28.50, calculate (a) the amount of money borrowed from the broker (b) the return on his equity taking into consideration all brokerage fees paid amounting 2.5% of the value of investment both for buying and selling of investment. (c) Return on his investment.
In you cash account, you buy 100 shares of XYZ Corporation at a price of $10 per share. Two months later, XYZ pays a dividend $0.21 per share. You sell all 100 shares of XYZ three months later at a price of $12 per share. If you wanted to lever up the returns of this trade, you could have executed it in your _____ account. A) cash B) margin C) brokerage D) bank If you borrowed 50% of the upfront investment amount, your return (in percent terms) would have been _____. A) 11.10 B) 22.10 C) 44.20
In you cash account, you buy 100 shares of XYZ Corporation at a price of $10 per share. Two months later, XYZ pays a dividend $0.21 per share. You sell all 100 shares of XYZ three months later at a price of $12 per share. What is your total return on this trade?
On January 1, you sold short 100 shares of XYZ stock at $20 using a 50% initial margin. The interest rate on the margin account is 10% annually. On April 1 (in three-months), you covered the short sales by buying stock at a price of $15 per share. You paid 50 cents per share in commissions for each transaction. Assume you received interest on all your assets, i.e. the sum of the short sale proceeds and the margin. What is the value of your assets and equity on April 1? What is the total rate of return on equity?